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As of early summer the economic outlook for the rest of 1997, as portrayed in the major media, could hardly be brighter. “Strong growth with little unemployment and low inflation doesn’t have to peter out….Could it possibly get any better than this?” exults Business Week (January). And, speaking for Wall Street, Goldman Sachs, one of its top firms, chimes in with similar sentiments in its periodic U.S. Economic Research Report: “the U.S. economy has been remarkably recession-free in recent years….By historical standards the current economic expansions exceeds by about one year the average length of expansion over the 1945-1980 period. This has caused some to conclude that a recession could be near at hand. We reach a very different conclusion: the current economic bash is far from over. The expansion will not end in 1997 and could continue for several more years” (January). “We see no reason for a major reversal of these trends…the next recession does not yet appear to be close at hand” (May).

Up to a point this is clearly a case of déjà vu all over again. A “new era” was widely and enthusiastically proclaimed by professors, pundits, and plain people as the stock market boom of the 1920s neared its peak. A few months later the market collapsed, and the greatest depression in U.S. history began. The big question now is whether the rest of the scenario of the 1920s and the 1930s is likely to repeat itself. The answer of the media and Wall Street and probably of plenty of plain people too is a resounding NO.

We are not so sure. In our view the 1920s were a period in which capital in the United States, then the most powerful capitalist country, ruled the roost and called the shots. Class struggle was subdued, social legislation at a minimum, distribution of income and wealth increasingly lop-sided, the capital accumulation process unregulated and unobstructed. Under the circumstances, productive capacity rapidly expanded, with mass consumption even though stimulated by rampant salesmanship and easy installment credit lagging behind. While the stock market boomed, the latent contradiction between production and consumption matured. Eventually, a crash in the stock market brought matters to a head and set the stage for the onset of stagnation.

Is there any reason to believe that the current period of expansion is like that of the 1920s and could come to a similar end? To answer this question we would need to have reasonably good data on actual or likely trends in the growth of productive capacity and consuming power. Such information is at best hard to come by and at worst unavailable or nonexistent. (In the case of the 1920s what we know is mostly derived from subsequent research). As far as the present situation is concerned, we know of no study relevant to the economy as a whole, but in one significant area of the economy (the world economy, as it happens) reliable information is available which, to say the least, is highly suggestive.

In its issue of May 10, Britain’s prestigious (and stalwartly orthodox right-wing) economic weekly, The Economist, ran a sensational article (researched by its sister institution, the “Economist Intelligence Unit”) under the headline “The Coming Car Crash: Global Pile-up the worlds’s biggest manufacturing industry is in a panic about over-capacity. So it should be.” We quote the first paragraph of the article:

Just as cities from Bangkok to Sao Paulo are blighted by monster traffic jams, so the firms that put all those vehicles on the road are facing their own snarl-up, and for the same reason: too many cars. In rich countries car sales are static…and though demand is growing in Asia and Latin America, production is growing even faster thanks to a rush of recent investment. The result is a worldwide glut of cars…. The over-capacity cannot last for ever. The pressure to bring supply into line with demand could drive one or two firms bust, produce capacity-cutting mergers or “make-everything” giants into niche-seeking specialists.

The rest of the story provides mind-boggling statistics on the extreme disequilibrium produced in one of the world’s biggest markets by the supposed magic of free competition, but it has little to add about the “car-crash” that is alleged to be coming. This is a subject that neo-liberals like the editors of The Economist would probably like to forget. The trouble is that it won’t go away. Whatever form the “crash” takes, it is pretty sure to be inordinately messy. Overcapacity in the auto industry is hardly likely to be unique, and once things start to unravel there’s no telling what direction they will take or how far they will go. Will the “liberated” global capitalism of today be more capable of coping with the consequences than its predecessor of the late 1920s and early 1930s?